The earliest predecessor of Caltrans was the Bureau of Highways, which was created by the California Legislature and signed into law by Governor James Budd in 1895.[2] This agency consisted of three commissioners who were charged with analyzing the state road system and making recommendations. At the time, there was no state highway system, since roads were purely a local responsibility. California's roads consisted of crude dirt roads maintained by county governments, as well as some paved roads within city boundaries, and this ad hoc system was no longer adequate for the needs of the state's rapidly growing population. After the commissioners submitted their report to the governor on November 25, 1896, the legislature replaced the Bureau with the Department of Highways.[3]

Due to the state's weak fiscal condition and corrupt politics, little progress was made until 1907, when the legislature replaced the Department of Highways with the Department of Engineering, within which there was a Division of Highways.[2] Voters approved an $18 million bond issue for the construction of a state highway system in 1910, and the first Highway Commission was convened in 1911.[2] On August 7, 1912, the department broke ground on its first construction project, the section of El Camino Real between South San Francisco and Burlingame (now part of California State Route 82).[4] The year 1912 also saw the founding of the Transportation Laboratory and the creation of seven administrative divisions (the predecessors of the 12 district offices that exist today).[2]

In 1913, the legislature started requiring vehicle registration and allocated the resulting funds to support regular highway maintenance, which began the next year.[2]

In 1921, the legislature turned the Department of Engineering into the Department of Public Works.[5]

The history of Caltrans and its predecessor agencies during the 20th century was marked by many firsts. It was one of the first agencies in the United States to paint centerlines on highways statewide (thanks to June McCarroll); the first to build a freeway west of the Mississippi River (the Pasadena Freeway); the first to build a four-level stack interchange; the first to develop and deploy non-reflective raised pavement markers, better known as Botts' dots; and one of the first to implement dedicated freeway-to-freeway connector ramps for high-occupancy vehicle lanes.

In late 1972, the legislature approved a reorganization (suggested in a study initiated by then-Governor Ronald Reagan) in which the Department of Public Works was merged with the Department of Aeronautics to become the modern Department of Transportation.[6]

For administrative purposes, Caltrans divides the State of California into 12 districts, supervised by district offices. Most districts cover multiple counties; District 12 (Orange County) is the only district with one county. The largest districts by population are District 4 (San Francisco Bay Area) and District 7 (Los Angeles and Ventura counties). Like most state agencies, Caltrans maintains its headquarters in Sacramento, which is covered by District 3.